Nonprofit Colleges Provide a Public Good

Not-for-profit colleges and universities with big endowments are tempting targets for cash-strapped governments in tough economic times. They certainly look profitable enough and the richest among them cater to the most well-heeled students -- and yet that non-profit status renders them, essentially, tax-free.

Our traditional colleges deserve due deference in the tax code because they make our economy, country and lives better.

So, why not yield to temptation and tax away?

Here’s why: Traditional not-for-profit colleges yield a public good. Just like our publicly subsidized roads and bridges, college brings more individual and general economic benefits than profit-driven markets can deliver by themselves. Neither individual students nor companies can capture the full economic benefits that college education ultimately brings. So the government puts its thumb on the scale and gives colleges a nonprofit status to make sure we don’t underinvest.

This is not the time to take away college tax breaks. The earnings premium for college degrees has doubled since the early 1980s precisely because our underinvestment has resulted in a situation where economic demand has increased faster than the supply of college graduates. Our own research shows that we will need 20 million more college graduates by 2025 or suffer $500 billion in lost gross domestic product every year thereafter.

For-profit colleges have a place, but they cannot supplant the not-for-profit sector. For-profits emphasize investments in short-term occupational preparation. In completely market-driven systems, programs like basic science, the liberal arts and humanities are the first to go. But these basic programs develop broad problem solving and other 21st century skills that make individuals more adaptive in their careers. In other words, nonprofits provide crucial investments in the long-term development of human capital -- and those investments ultimately pay off.

And the need for a special tax status for our colleges goes beyond mere dollars and cents. College educations have become crucial to the social contract in democratic capitalism. They provide our citizens with the best shot at middle-class earnings, and the breadth of traditional college curriculums allow individuals to live more fully in their time. Our not-for-profit colleges and universities also support disinterested inquiry that can provide healthy counter perspectives to those generated by powerful economic and political interests. They are a force, in other words, for individual liberties. This is especially true for the private not-for-profits that operate beyond the reach of government control.

Ultimately, our traditional colleges deserve due deference in the tax code and in public spending because, at their best, they make our economy, country and lives better.